Surprise Deficit In July A Blow To Osborne

Official figures have revealed a surprise deficit in the UK's finances for July as the Government struggles to rein in spending.

The Office for National Statistics (ONS) showed a £62m shortfall for July this year, compared to a £823m surplus in the same month of 2012.

An increase in central government spending outstripped a rise in tax receipts - a blow during a month when the state is typically in the black because of company tax payments.

It is the first time there has been net borrowing in July since 2010.

Public sector net debt as a proportion of the UK's gross domestic product (GDP) also hit a record for July at 74.5%.

Once a transfer of around £400m for quantitative easing (QE) cash was included, public sector net borrowing was £885m higher than a year earlier.

The ONS said higher central government spending was spread across departments and that the Treasury expects the figure to be revised down in the coming months.

The Office for Budget Responsibility (OBR) expects the deficit to come in at around £120bn for the year to the end of next March, up on last year's £116.5bn.

Total tax receipts excluding QE cash were 3.4% higher year-on-year at £54.1bn in July, helped by increases in VAT sales tax, income tax, National Insurance contributions and stamp duty on home purchases.

But corporation tax receipts dipped to £7bn from £7.1bn a year earlier, despite increasing signs of growth in the economy.

Central government spending rose by 4% to £51.2bn.

Martin Beck, UK economist at consultancy Capital Economics, said the figures show the public purse has "yet to benefit from the economic upturn".

He said: "While signs of economic recovery should eventually feed through into an improvement in the public finances, it looks like the Chancellor will have to wait a while yet."

Recent figures showed the economy expanded by 0.6% in the second quarter, double the 0.3% in the first three months of the year.

Economists increasingly believe the UK is on course to match or beat second quarter growth in the July to September quarter.

A Treasury spokesman said: "Strong tax receipts in July confirm that the economy is moving from rescue to recover.

"There is still a long way to go as the UK recovers from the biggest economic crisis in living memory, and the Government is sticking to the economic plan that has already cut the deficit by a third and enabled the private sector to create over 1.3 million new jobs."

Shadow financial secretary to the Treasury Chris Leslie accused Chancellor George Osborne of complacency.

"Another month of disappointing figures raises very serious concerns that borrowing continues to be way off track," he said.

"He's borrowing billions more than planned simply to pay for the costs of his economic failure and his promise to balance the books by 2015 is now in tatters."

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